I got a tap on the shoulder recently when I was walking to the office; it was the MD of a local retail business I know. We got chatting and it emerged she has a number of business problems caused by recent losses and faltering cashflow.
We were next to a cafe, so I said let’s have a cup of tea and see if we can’t fix your business.
1. Is each shop making money?
Look at the margin being made from the sales, can you have a conversation with the landlord about a rent-free period, can you only open for a few days a week?
If you can’t make a shop make money then if it’s cheaper to close it, close it.
2. Put your cashflow model front and centre in your business
Amazingly, they weren’t using a cashflow model. I bet they are now!
Once the cashflow model is in place, go to the bank and have a grown-up discussion.
3. Review the prices of your best-selling lines
Even when times are hard, customers who will spend, say, £1,000 on a particular item will probably spend £1,100 on it rather than drop down to a much lower price / quality point.
The MD has many product lines and can test very easily whether raising prices increases profits or reducing prices loses profits. It matters less what happens to sales, so long as profits are increasing and the objective is to earn good gross profits from the best-selling products.
Test, test, learn, change, test……….you’d be surprised the effect a change in margins has on a change in profits.
4. Cut your costs of sale and overheads
In her market many competitors have gone to the wall, so she is relatively successful and you can bet her suppliers will want her to succeed. So ask for price reductions and share the pain down through the supply chain.
The main suppliers should be happy to make 90 – 95% of what they used to make instead of 0%!. Again, think of the effect of gross profit margin on the bottom line.
Will the staff share a 5 or 10% pay cut or swap some part of fixed salary for a sales-based commission? Put pressure on your landlord (them again).
5. Use your own time sensibly
I was surprised she said that she was dragged down by all the stuff that comes across the desk every day. Focus on the important things. In this case:
- cashflow
- reducing costs of sale and overheads
- viability of shops
- testing sales and margins
Give the rest of the work to other people, do it later, ignore it altogether but DON’T let it get in the way of the important stuff.
And don’t forget the therapeutic effect of a nice cup of tea!
Michael
Related links:
Clients – are they profitable and will I be paid in good time?
